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Session 4 Supply and Demand

Session 4 Supply and Demand. Disclaimer: The views expressed are those of the presenters and do not necessarily reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System. TEKS.

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Session 4 Supply and Demand

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  1. Session 4Supply and Demand Disclaimer: The views expressed are those of the presenters and do not necessarily reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System.

  2. TEKS (2) Economics. The student understands the interaction of supply, demand, and price. The student is expected to: (A) understand the effect of changes in price on the quantity demanded and quantity supplied; (B) identify the non-price determinants that create changes in supply and demand, which result in a new equilibrium price; and (C) interpret a supply-and-demand graph using supply-and-demand schedules.

  3. Teaching the Terms • Market • Demand • Supply • Determinants • Surplus • Shortage

  4. Markets • A market facilitates the interaction of a buyer and a seller as they complete a transaction • Buyers, as a group, determine the demand • Sellers, as a group, determine the supply

  5. Characteristics of Competitive Markets • Identical goods or services • Enough buyers and sellers so that no participant can influence the market price – everyone is a price taker

  6. Demand • Law of demand • Quantity demanded • Demand schedule • Demand curve • Determinants of demand

  7. The Law of Demand

  8. Demand

  9. Determinants of Demand • Income • Price of related goods • Complements • Substitutes • Tastes or preferences • Expectations • Number of buyers

  10. Shifting Demand

  11. Supply • Law of supply • Quantity supplied • Supply schedule • Supply curve • Determinants of supply

  12. The Law of Supply

  13. Supply

  14. Determinants of Supply • Input prices • Technology • Expectations • Number of sellers

  15. Shifting Supply

  16. Market Equilibrium

  17. Market Equilibrium

  18. Market Equilibrium

  19. Practice • Draw the graph. • Which curve is shifting because of the changing market conditions? Supply? Demand? Both? • Which direction is the shift? • Draw the shift. • What is the impact on price and quantity?

  20. Price Controls • Price Ceiling • If price is fixed BELOW the market clearing price • Creates a shortage because Qd > Qs • Rent controls • Price Floor • If price is fixed ABOVE the market clearing price • Creates a surplus because Qd < Qs • Minimum wage

  21. Price Elasticity of Demand • Measures the responsiveness of quantity demanded to a change in price • Determinants • Availability of close substitutes • Necessities versus luxuries • Definition of the market (food vs. ice cream vs. chocolate ice cream) • Time horizon

  22. Price Elasticity and Total Revenue • If demand for a good is elastic, price increases lead to lower total revenue • If demand for a good is inelastic, price increases lead to higher total revenue

  23. Price Elasticity of Supply • Measures the responsiveness of quantity supplied to a change in price • Determinants • Availability of inputs • Time

  24. Questions?

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